- Q1 revenues miss estimate but margin, net profit beat forecast
- Overall revenue decline at -0.9% qoq on the back of qoq fall in global operations sales attributable to accounting of IRU income in Q4; India revenues up 1.5% qoq
- EBIDTA margin improved a robust 230bps qoq and ahead of our estimate due to decline in staff and SG&A costs
- Reported PAT better than expected on EBIDTA beat and lower interest income qoq though partly offset by lower other income
- Retain SELL on lack of near term catalysts even as recent fund raising to aid balance sheet deleveraging

Revenue miss but beat on margin and profit
Q1 revenues declined 0.9% qoq vs our estimate for a 1.8% qoq on the back of weakness in global operations whose revenues declined 14.9% qoq and 5.1% yoy. India business saw 1.5% qoq revenue growth and 20bps margin expansion. Voice revenues were up 1.5% qoq while non voice grew at a faster pace of 4.7% qoq. India operations capex stood at Rs3.8bn or 8.1% of gross revenues while total capex was Rs4.1bn. Within global operations, data revenues fell ~24% qoq which the company attributed to the way IRU income is accounted under Indian GAAP (at the end of Q4) which leads to lumpiness in quarterly revenues. Voice revenues increased 13.6% yoy and global business margin rose 60bps qoq.

Fund raising to aid BS deleveraging but lacks operational triggers
Recent fund raising through QIP and subsequent promoter fund infusion would cumulatively add to ~Rs61bn and result in ~22% equity dilution. Along with other announced steps like monetization of real estate and little pressure in terms of renewal spectrum, we believe near term concerns on excess debt have been partially addressed. However, we do not foresee any concomitant improvement in operating metrics which have lagged peers in the past several quarters. Revise estimates to incorporate equity dilution but retain sell with unchanged 9-12mth target of Rs105.

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